Consumer Says: Economic Headwinds Are Picking Up

U.S. economic conditions are gradually worsening, as indicated by Morning Consult's "temperature" gauge dropping to 63℉ amid rising inflation and unemployment, alongside declining consumer sentiment. Major confidence indexes show significant drops, with Morning Consult's daily ICS erasing summer gains due to government shutdown uncertainty, which also impacts official jobs data. While observed spending remains stable, expectations for September retail sales are for slower growth, and inflation is projected to reach 3.1%—the highest since May 2024—with consumers increasingly noting price hikes. Alternative employment data is mixed, but Morning Consult's Unemployment Index has recently climbed, reversing summer improvements.

Analysis

Welcome back to Consumer Says, the Morning Consult Economic team’s bi-monthly newsletter. This newsletter gives readers a succinct update on recent economic news alongside Morning Consult’s data and research on the consumer side of economics. Also, want to work with Morning Consult but not sure how you'd use our services? See how Cox Automotive uses Morning Consult data to stay ahead of policy changes, consumer shifts, and broader economic headwinds. You can subscribe here. Clients are welcome to reach out directly with questions. Temperature check on the U.S. economy In each edition of Consumer Says, our economists give an updated rating for current economic conditions using temperature as a metaphorical metric. Our “perfect temperature”--signifying an economy that is strong but not overheating–is 70 degrees. 🌡️ Current temperature: 63 ℉ Economic conditions are getting chillier, but so far not by much. We nudged our “temperature” gauge slightly lower this week as conditions gradually worsened across some of our critical economic metrics: Both inflation and unemployment appear to be ticking higher, and consumer sentiment has recently been sliding. While observed spending levels haven’t yet taken a hit, all signs point to cooler demand in recent weeks. Consumer says 🛒 Consumer sentiment trends lower amid shutdown: Even without government data to “officially” inform the public on the state of the economy, consumers are making judgements about business and personal financial conditions–and views are deteriorating. The Conference Board reported that consumer confidence fell to its lowest level since April in September, and the University of Michigan’s consumer sentiment index is expected to show a similar decline. Expectations for the September retail sales report scheduled for next week call for positive growth, but at a slower pace than in August. - 📣Consumer Says: Morning Consult’s daily ICS has been steadily trending down since the end of August, and the downslide appeared to accelerate over the past week as uncertainty from the government shutdown stokes concern. The index has now erased its summer gains and sits close to its 2025 lowpoint in April, when tariff and inflation worries reached a fever pitch in the wake of the Trump Administration’s “Liberation Day” announcements. Meanwhile, the Consumer Health Index (CHI), which includes both labor and sentiment components and has a historically strong correlation with spending growth, has been cooling modestly but consistently over the past month, supporting the expectation that retail sales expansion likely slowed. 📊 Consumers continue to notice price increases: While a continuation of the government shutdown may delay the release of inflation numbers currently scheduled for next week, forecasters believe annual price growth picked up again in September. According to Bloomberg, the consensus estimate for annual consumer price growth is 3.1%, a rate that would be the highest since May 2024. - 📣Consumer Says: Morning Consult’s indexes tracking inflation pressures among consumers suggest that households are increasingly noticing price hikes. The Price Surprise index tracks the prevalence of consumers being surprised by higher than expected prices and has historically maintained a strong correlation with inflation. This metric has been climbing since April, with goods categories being particularly impacted as tariff costs filter through to consumer prices. 💼 Alternative data fills void of missed jobs report: With key data releases by agencies including the Bureau of Labor Statistics suspended amid the ongoing government shutdown, we have yet to see official numbers for nonfarm payrolls, unemployment and wage growth for the month of September. Alternative data sources offered mixed results, with ADP showing a contraction in jobs and Revelio Labs reporting a modest increase. The Chicago Federal Reserve Bank’s recently released labor metrics, which include Morning Consult’s data as an input, estimated that unemployment stayed close to its August level of 4.3%. - 📣Consumer Says: Morning Consult’s data aligned with the view of relatively stable employment conditions through the first half of September, which includes the BLS’s typical reference week. However, over the second half of the month and through the early days of October, the Unemployment Index has been climbing, erasing the improvements registered over the summer. Kayla Bruun is the lead economist at decision intelligence company Morning Consult, where she works on descriptive and predictive analysis that leverages Morning Consult’s proprietary high-frequency economic data. Prior to joining Morning Consult, Kayla was a key member of the corporate strategy team at telecommunications company SES, where she produced market intelligence and industry analysis of mobility markets. Kayla also served as an economist at IHS Markit, where she covered global services industries, provided price forecasts, produced written analyses and served as a subject-matter expert on client-facing consulting projects. Kayla earned a bachelor’s degree in economics from Emory University and an MBA with a certificate in nonmarket strategy from Georgetown University’s McDonough School of Business. For speaking opportunities and booking requests, please email [e-mail] The U.S. economy is exhibiting clear signs of deceleration, with Morning Consult's "temperature" gauge dropping to 63℉, signaling a shift from strong to cooling conditions. This deterioration is attributed to a confluence of factors including rising inflation, increasing unemployment, and a significant decline in consumer sentiment, pointing towards potentially cooler demand ahead. Consumer confidence has notably deteriorated, with the Conference Board index falling to its lowest level since April and Morning Consult's daily ICS erasing summer gains, exacerbated by government shutdown uncertainty. This widespread pessimism, also reflected in a cooling Consumer Health Index, suggests a likely slowdown in retail sales expansion, despite observed spending levels remaining stable for now. Inflationary pressures are re-emerging, with forecasters anticipating annual consumer price growth of 3.1% for September, which would mark the highest rate since May 2024. Morning Consult's Price Surprise index corroborates this, showing consumers are increasingly noticing price hikes, particularly in goods categories impacted by tariff costs. While official labor market data is delayed, alternative sources present a mixed picture, with some indicating job contraction. Critically, Morning Consult's Unemployment Index has been climbing through late September and early October, reversing summer improvements and suggesting a potential weakening trend in employment conditions.

Key Decisions for Investors

• Investors should consider defensive positioning given the strongly negative sentiment and indicators of economic deceleration, including rising inflation and weakening consumer confidence.
• Closely monitor upcoming retail sales data for confirmation of slowing consumer demand and evaluate portfolio exposure to consumer discretionary sectors.
• Pay attention to the resolution of the government shutdown and subsequent release of official labor market data, as these will provide critical clarity on employment trends and broader economic stability.